Papandreou Calls Off Referendum!

The Eurozone leaders have a long way to go before they get past this debt crisis… And along the way there will be some potholes big enough to swallow a Mac-Truck. But knowing what I know about the resiliency of the region, they will pull themselves out of the pothole, and attempt to move further along the way toward solving the crisis.

This morning, the euro (EUR) is stronger, but…will actually (barring any major swings today) end the week down, thus ending its three-week run of weekly gains versus the dollar. In fact, if things stay the way they are right now with the euro around 1.3840, this will be the biggest weekly drop in two months… But, like I said, the euro is stronger this morning, which allows the other currencies to move higher in today’s strange and twisted market mentality of disregarding the individual fundamentals of a country.

So… Yesterday, I told you that, well… Let’s go to the Pfennig tape of what I actually said yesterday morning…

But, here’s where I think things in Greece will take a U-Turn… I’m going to crawl out on a limb and say that the referendum will be cancelled! Hey, they might not even have the confidence vote in Parliament… I think the Eurozone leaders got to Papandreou.

And then what actually happened yesterday? Papandreou cancelled the referendum! OK… So, the euro’s strength this morning that began yesterday after the cancellation of the referendum was announced is from the closing of all the shorts that were put on with the euro, when Papandreou initially called for a referendum, and the markets priced in a “no vote” which would have caused a Greek default… So, all those shorts were closed and the euro popped up a bit…

OK…. So I’m reading this news yesterday morning, and thinking… Hey, Chuck, you hit that one bang on, maybe you should head to Vegas… But then I remembered how badly I felt, and the fact that I don’t “get” Vegas, and therefore don’t care to spend a lot of time there!

But that’s not all! The euro got another boost, when the European Central Bank (ECB) and their new President, Draghi, just went ahead and cut rates yesterday… Draghi was so brazen that he didn’t feel the need to issue a dovish statement first, and cut rates next month… He went for the rate cut…. So, once again, I hit that bang on, the fact that he would cut rates as soon as possible… I just didn’t think he would start his career as ECB President, debasing the euro!

So… Remember when I told you that if the markets kept that perverted market mentality of rewarding currencies from countries that cut rates to promote growth, even in the face of inflation being higher than their ceiling target, then the euro would gain if Draghi cut rates? Well… I guess we can say that the perverted market mentality still exists… Because the euro gained versus the dollar and Swiss franc (CHF) after the rate cut was announced…

G-20 Finance Ministers are still meeting, and making statements about this, that, and the other thing, but in reality, they aren’t shaking any trees. Just leaving a lot of sawdust on the floor with their meetings.

But the Big Kahuna today, is the US Jobs Jamboree… Recall that last month the economy added 103,000 jobs, following the 57,000 in August, and 127,000 in July. Hmmm… So, with that pattern, it looks like October job creation will be less than 103,000… My thought would be for it to be around 85,000… The experts have forecast a 90,000 number… So, as usual, I’m thinking less jobs created than the “experts”!

I’ve told you all before how this traditionally breaks down, but I’ll go through it again for those new to class… During the mature phase of an economic expansion, monthly jobs gains of 150,000 or more are considered to be healthy. In the early stages of an economic recovery (which is what we are supposedly in) jobs gains are expected to exceed 250,000 per month…

So… One would think that, even with the 103,000 jobs gained in September, the markets would take a pound of flesh from the dollar… But they didn’t… They basically said, 103,000 jobs created is good, so we’ll reward the dollar… So, one has to wonder what their frame of mind will be when less than 90,000 jobs print this morning… I would think that the dollar would be taken to the woodshed for printing a number less than forecast… But, we’ll have to see, eh?

Elsewhere… The Reserve Bank of Australia (RBA) was able to show off last night… The RBA provided proof that their rate cut was justifiable… The RBA came out with an inflation forecast for the next two years that showed an average of 2.5% for that time table. Now… I don’t see this justifying their rate cut… This is all too close… By that I mean, the RBA cuts the rates, and then issues their own report showing inflation slowing? The games people play now… But the markets swallowed the report, hook, line and sinker… And the Aussie dollar was allowed to rebound a bit, but will still finish out the week on a down…

In Canada this morning… It was expected that their stellar Jobs report from September would be followed up with another good report for October, but… That didn’t happen, as October printed a fall in jobs of 54,000 which almost reverses September’s stellar gain of 61,000… The Canadian dollar/loonie (CAD) is feeling the pain this morning for printing a report like that.

And in the G-20… The Finance Ministers have called on China, once again, to allow a faster appreciation of the renminbi (CNY). These guys just don’t get it! Has China ever responded to any of these calls by the G-20, the US or Europe? No! And they won’t this time either… If I were the Chinese representative at G-20, I would point to the US and Europe and tell them to clean up their own house, drop the bills that would implement protectionism, and when all that is done, they would think about allowing a faster appreciation of the renminbi! Maybe the Chinese representative at G-20 did say this… But, I’m sure he just thought it to himself… And went back to China to do whatever he wanted to do with the currency!

To recap… Papandreou called off the referendum which came as a shock to the markets, but not to Chuck! This caused all the euro shorts that were put on when Papandreou announced the referendum in the first place! And ECB President, Draghi, cut rates at this very first meeting, but the perverted market mentality of rewarding currencies from countries that cut rates to promote growth, prevailed, and the euro bounced higher. And today is a Jobs Jamboree… Look for a weaker number of jobs created in October…

About Chuck Butler:

Chuck Butler is the Managing Director EverBank Global Markets. The father of the Daily Pfennig® newsletter, Chuck has a career in investment services and currencies spanning 35+ years. His tacit knowledge of the global markets along with his inventive spirit has led to the creation of many distinct and innovative currency-based products. A respected analyst of the currency market, Chuck has made frequent appearances on MarketWatch, USAToday, CNNfn, Bloomberg Television, and CNBC as well as quoted in The Wall Street Journal, US News & World Report, and The Chicago Tribune.